Local gov’ts urged to ramp up spending

By Jenina P. Ibañez, Senior Reporter

LOCAL government units (LGUs) need to set up a strong pipeline of projects and improve their implementation processes to support spending as their share in national taxes expands this year, the Department of Finance (DoF) said.

“LGUs need to brush up on project planning and implementation so that projects are efficiently implemented and finished on time,” Finance Undersecretary and Chief Economist Gil S. Beltran said in a Viber message.

“They should also keep a good pipeline of projects so that resources are not kept idle. The Development Academy of the Philippines offers courses relevant to this for LGU executives and managers.”

The DoF has said the Supreme Court’s Mandanas ruling that expands local governments’ share in national taxes starting this year would lead to lower economic growth.

The department noted that the higher tax allocation for LGUs would dampen spending efficiency — which measures the share of funds that create jobs or stimulate demand to total spending — because the National Government usually spends at double the pace.

Romeo L. Bernardo, a trustee for the Foundation for Economic Freedom and former Finance undersecretary, said that the LGUs should explore more private public partnerships due to constraints in fiscal space and the need to tap private sector expertise.

In an e-mail, he said LGUs have limited ability to spend capital, which ends up being “either unspent or worse, wasted.” “Thus, the lack of local technical capacity perpetuates the dependence of local governments on the National Government,” he added.

He suggested that the National Government provide capacity-building support to LGUs and channel the higher internal revenue allotments to local coronavirus response.

“(This would) mitigate budget execution risks while providing much needed support to local constituents. Especially in the transition as their capacity is being developed,” he said.

The Supreme Court ruling is named after Batangas Governor Hermilando I. Mandanas who successfully challenged the government’s previous position that LGUs were entitled to a smaller share of National Government funds.

President Rodrigo R. Duterte in June last year signed Executive Order (EO) 138 which transfers a number of basic services to LGUs by 2024. With this, the government is shifting programs and projects, worth an estimated P234.4 billion, to LGUs.

Mr. Bernardo said that in the future, the government must pass legislation that would improve the internal revenue allotment system. The system could correct mismatches in amounts provided to different forms of LGUs and include performance incentives.

“Incorporate a performance incentive element in the formula to reward LGUs doing better in both revenue mobilization and spending efficiency,” he said.

However, lower LGU efficiency may not be the biggest driver of poor spending. Previously, Institute for Leadership, Empowerment, and Democracy (I-LEAD) Executive Director Zy-za Nadine Suzara said spending inefficiencies by LGUs would not likely deter economic growth, because a greater bulk of the budget stays with the National Government.

Factors that could dampen the contribution of government spending on economic growth include the ban on public works projects in the lead up to the elections in May, and limited spending from major agencies because of the pandemic, she said.

The World Bank in June last year said funds that the LGUs fail to spend could increase by P155 billion in 2022, or the equivalent of 0.7% of gross domestic product, if their capability to enforce projects are not upgraded.